Employer coverage is affordable under the ACA when an employee’s cost for self-only coverage is at or below a set percentage of household income. The IRS updates that percentage each year, and it drives both employer mandate penalty exposure and employee eligibility for Marketplace subsidies.
An ALE can face two employer-mandate penalties under IRC §4980H. For 2026 the “no offer” (a) penalty is $3,340 per full-time employee (minus the first 30), and the “unaffordable/low-value” (b) penalty is $5,010 per subsidized employee.
The FPL safe harbor makes ACA affordability a flat amount: the required self-only contribution can’t exceed 9.96% (for 2026) of the federal poverty line for one person ÷ 12, about $129.90/month for 2026.
The rate-of-pay safe harbor measures ACA affordability using an employee’s hourly rate (× 130 hours) or monthly salary, applying the affordability percentage (9.96% for 2026), without needing to know actual income.
The W-2 safe harbor measures ACA affordability against the employee’s Box 1 W-2 wages: coverage is affordable if the required self-only contribution doesn’t exceed the affordability percentage (9.96% for 2026) of those wages.
The “family glitch” was an ACA flaw that based family subsidy eligibility only on the cost of employee-only coverage, denying Marketplace subsidies to families who couldn’t afford the employer’s family premium. A federal rule fixed it starting with 2023 plan years by testing family-coverage affordability separately.
The affordability percentage is the maximum share of income an employee’s required self-only contribution can take for ACA coverage to count as “affordable.” For 2026 it is 9.96%.